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Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003)

Sector Codes

Defence Sector Code

16. Elements of the Defence Sector Code: Large Entities Scorecard

16.1 Ownership

 

16.1.1 One of the most effective tools for promoting sustainable economic transformation and growth in the SADI is meaningful ownership by Black people of an Economic Interest in Enterprises. Stakeholders therefore commit to achieving the following ownership targets within a period of 3 (three) years from the date of the promulgation of this Sector Code: -
16.1.1.1 a minimum target of 25% (twenty-five per cent) of Economic Interests held by Black people in Enterprises in the SADI in the first year after promulgation of this Sector Code, 30% (thirty per cent) in the second year and in the third year 35% (thirty-five per cent);
16.1.1.2 a minimum of 10% (ten) per cent of an Economic Interest held by Black women in Enterprises in the SADI in the first year and 15% (fifteen) per cent in the second and third year; and
16.1.1.3 any ownership target, as with other elements of this Sector Code, shall include a minimum threshold for Black Designated Groups.

 

16.1.2 Black people who have an Economic Interest in an Enterprise must have exercisable Voting Rights and be entitled to receive economic benefits arising from such Economic Interest subject to any liabilities they may have incurred in the course of acquiring an economic interest.

 

16.1.3 All Measured Entities are bound by the ownership targets set out herein except where specifically exempted in this Sector Code.

 

16.1.4 Multinational Enterprises shall comply with the ownership element of the Sector Code unless they are subject to a Global Practice prohibiting such enterprises from selling shares outside their country.

 

16.1.5 In the event paragraph 16.1.4 applies, the Multinational Enterprise shall:—
16.1.5.1 produce satisfactory evidence of the such Global Practice; and
16.1.5.2 evidence of an Equity Equivalent Programme approved by the Minister.

 

16.1.6 Black People holding rights of ownership in a Measured Entity through Employee Share Ownership Schemes may contribute a maximum of 40% of the total points on the ownership scorecard provided that such Employee Share Ownership Scheme meet the following qualification criteria:—
16.1.6.1 the constitution of the scheme must define the participants and the proportion of their claim to receive distributions;
16.1.6.2 not less than 85% of the value of benefits allocated by the scheme must accrue to Black people;
16.1.6.3 not less than 50% of the fiduciaries of the Scheme must be Black people and at least 25% must be Black women;
16.1.6.4 participants may be named or referred to as a defined class of natural persons and their claim to receive distributions may be in fixed percentages or determined in terms of a formula and the fiduciaries of the scheme have no discretion in this regard;
16.1.6.5 the constitution of the Scheme and any other information affecting the scheme including such information of the Measured Entity that a shareholder in a company having shareholding would be entitled to be available on request to any participant in an official language in which that person is familiar;
16.1.6.6 the fiduciaries of the Scheme must present the financial reports of the scheme to participants yearly at an annual general meeting of the scheme;
16.1.6.7 the participants must take part in appointing at least 50% of the fiduciaries and must have a role in the management of the scheme similar to the role of a shareholder in a company having shareholding;
16.1.6.8 all accumulated Economic Interest in the scheme is payable to the participants at the earlier of a date specified in the constitution or on termination or winding up of the scheme;
16.1.6.9 no onerous or punitive measures exist in the constitution or management of the Scheme that in any manner whatsoever deprive the participants of any rights to the benefits of the scheme including when they cease to be employees of the Measured Entities;
16.1.6.10 the chairperson of the scheme must be independent; and
16.1.6.11 the Scheme should have representation on the board of directors of the Measured Entity.

 

16.1.7 Black Participants in a Trust holding rights of ownership in a Measured Entity may contribute a maximum of 40% of the total points on the Ownership Scorecard of the Measured Entity if the Trust meets the qualification criteria for Trusts set out in paragraphs 16.1.8 and 16.1.9 herein.

 

16.1.8 The qualification criteria for the recognition of Trusts are as follows:
16.1.8.1 the trust deed must define the beneficiaries and the proportion of their entitlement to receive distributions;
16.1.8.2 a written record of the names of the beneficiaries or the use of defined or natural person satisfies the requirement for identification;
16.1.8.3 a written record or fixed percentage of entitlement or the use of a formula for calculation entitlement satisfies the need for defining proportion of benefit;
16.1.8.4 the trustees must have no discretion on the above-mentioned terms;
16.1.8.5 on winding-up or termination of the trust, all accumulated Economic Interest must be transferred to the beneficiaries or to an entity representing the interest of the participants or class of beneficiaries;
16.1.8.6 the trust must have been established for legitimate commercial purposes which must be fully disclosed and its objects must reflect;
16.1.8.7 the Trust must be entitled to nominate and appoint persons on the board of directors of the Measured Entity commensurate with its shareholding in such Measured Entity; and
16.1.8.8 the terms of the Trust do not directly or indirectly seek to circumvent the provisions of the Defence Sector Code and the Act.

 

16.1.9 The qualification criteria for the recognition of Family Trusts are as follows:
16.1.9.1 the trust deed must define the beneficiaries and the proportion of their entitlement to receive distributions;
16.1.9.2 a written record of the names of the beneficiaries or the use of a defined class of natural persons satisfies the requirement of defining beneficiaries;
16.1.9.3 a use of a formula for calculating entitlement satisfies the need for defining proportion of benefit and only the trustee must have discretion on the above-mentioned terms; and
16.1.9.4 on winding-up or termination of the trust, all accumulated Economic Interest must be transferred to the beneficiaries or to an entity representing the interest of the participants or class of beneficiaries.

 

16.1.10 The provisions relating to Trusts do not apply to any Trusts registered prior to the gazetting of the Defence Sector Code.

 

16.1.11 The decisions of Black owners of equity interests to sell, transfer, alienate or otherwise dispose of their Equity Interest in any Enterprise shall not affect the obligation of such Enterprise to at all times fully comply with the ownership targets in this Sector Code.

 

16.1.12 When determining ownership in a Measured Entity, ownership held by Organs of State or State-Owned Enterprises must be excluded.

 

16.1.13 Exclusion of Ownership held by the Organs of the State or State-Owned Enterprises is to be effected before any other Ownership discounting methods are to be applied.

 

16.1.14 In calculating the Ownership score, Measured Entities must apply the Exclusion Principle to any portion of their Ownership held by Organs of State or State-Owned Entities.

 

16.1.15 The provisions of paragraphs 16.1.8 to 16.1.10 shall not apply to Organs of State or State-Owned Entities that are B-BBEE Facilitators during the relevant period of measurement. Such exemption applies only to the Ownership Element and such Organs of State and Public Entities who are B-BBEE Facilitators must comply with all other provisions of this Sector Code.

 

16.1.16 Notwithstanding any other provision in this Sector Code, Organs of State and Public Entities may, taking into consideration the objectives of this Sector Code, introduce restrictions on or exclude Measured Entities from tendering or doing business with them if they do not comply with the ownership targets set out in paragraph 16.1.1 hereof.

 

16.1.17 Equity Equivalents

 

16.1.17.1 Examples of Equity Equivalents shall include, but not be limited to—
16.1.17.1.1 skills transfer programmes aimed at building the capacity of Black people to participate in the defence industry;
16.1.17.1.2 technology transfer programmes intended to increase the participation of Black people in the defence industry;
16.1.17.1.3 programmes that promote economic growth and employment creation through the development of technological innovation beyond the Multinational's core business activities;
16.1.17.1.4 supplier-development and any other interventions targeted at reducing the overreliance of the South African defence industry on Foreign Enterprises;
16.1.17.1.5 programmes in line with applicable programmes in South Africa that were initiated to increase the manufacturing capacity of the economy;
16.1.17.1.6 programmes of the defence industry that are in place to facilitate the skills and technology transfer to South African enterprises in general and black-owned enterprises in particular; and
16.1.17.1.7 programmes aimed at building the capacity of Black Designated Groups to participate meaningfully in the SADI value chain.

 

Ownership Scorecard

 

B-BBEE

Element

Indicator

Description

Weighting

Points

Compliance Target

Year 1

Year 2

Year 3

Ownership
1. Voting Rights
1.1 Exercisable Voting Rights in the Measured Entity in the hands of Black people

4

25%

30%

35%
1.2 Exercisable Voting Rights in the Measured Entity in the hands of Black Women

2

10%

15%

15%
2. Economic  Interest
2.1 Economic Interest in the Measured Entity to which Black people are entitled

4

25%

30%

35%
2.2 Economic Interest in the Measured Entity to which Black women are entitled

2

10%

15%

15%

Economic Interest of any of the following Black natural people in the Measured Entity
2.3.1 Black Military Veterans

4

3%
2.3.2 Black people in Broad-based Ownership
2.3.3 Black New Entrants

1

2%
3. Realisa-tion Points

Net Value

8

 

Total

25 Points